Forget e-commerce; social commerce is where it’s at

Plans from Facebook that will enable users to buy products without leaving the site could have major implications for etailers.

New buzz word ahoy!

Yes, for those of you who have been eagerly awaiting the latest phrase with which to impress your less digitally inclined friends and colleagues, I give you: “social commerce”.

As a term for the latest development in the interactive space, social commerce has a lot going for it. It includes the word social, for a start. It’s vague enough to be subject to a number of different definitions, which allows for endless discussions about whether something is, or isn’t, part of it. And what’s more, by some of those definitions it has been around for ages, allowing some “promise of the internet” credibility to cling to it.

Amazon’s use of customer reviews and eBay’s system of groups and seller ratings could both be seen as early examples of social commerce, while Dell claims to have made $6.5m (£4.2m) selling computers on Twitter since 2007. But if that’s the case, why are people just beginning to talk about social commerce now?

Two announcements in the past month have catapulted the concept into the forefront of discussions on new media. The first was that Facebook announced it would shut down its Facebook Gift Shop next month, paving the way for the launch of its virtual currency, Facebook Credits, possibly as early as September. Already in beta testing, Facebook Credits will initially allow users to pay for virtual goods such as games, but will eventually let them buy anything, with the network expected to take a 30% cut of all transactions.

The second announcement was that Procter & Gamble has started selling its Max Factor brand cosmetics through Facebook as part of what the FMCG giant calls “small-scale direct-to-consumer” initiatives. This follows in the footsteps of Disney in the US, which recently launched a Facebook app allowing people to book tickets for Toy Story 3 without leaving the social network.

These two approaches take social media on a step by bringing the ability to purchase what you’re talking about on the social network within the network itself. Etailers know that every page you ask people to click through results in a drop-off in numbers, just as each floor you ascend in a shopping mall has fewer shoppers. So when there’s buzz being generated about your products in the social space it makes sense to bring the checkout to the potential customers, rather than the other way round.

Facebook Credits will initially allow users to pay for virtual goods such as games, but will eventually let them buy anything, with the network expected to take a 30% cut of all transactions… and Procter & Gamble has started selling its Max Factor brand cosmetics through Facebook as part of what the FMCG giant calls ‘small-scale direct-to-consumer’ initiatives.

Facebook Credits could take that principle and write it very large indeed. The social network is on the point of announcing its 500 millionth member, which alone makes it a compelling place for brands to set up shop. That, along with the cost, is one of the reasons brands are increasingly using Facebook pages rather than microsites as the hubs of their digital marketing campaigns. Add to that the amount of data that Facebook collects on its users, and the fact that Facebook Connect allows users to log into sites outside the platform using their Facebook login, and you have an ecommerce platform of unprecedented reach and power.

But while there are compelling reasons to use Facebook as an ecommerce vehicle, there are also big questions. The first is whether this is a vehicle for everyone with a product to sell, or whether that 30% transaction fee will mean it will be used mainly by brands looking to sell direct. Certainly it opens up the possibility of brands collecting levels of data about their customers that have never been available before.

Another big question is what Facebook’s move means for other players that could be considered to be in the social commerce space. Speaking to New Media Age last week, eBay UK’s director of advertising partnerships Phillip Rinn said that social shopping isn’t yet mature in the UK. This seemed like a curious remark from one of the pioneers of social commerce, not so much because it’s clearly true as because one of the signs of a market maturing is the arrival of new entrants. The real concern for eBay must be the threat that Facebook Credits would pose to PayPal, which is currently the closest thing there is to a web currency. There must also be a concern that a retail structure based on Facebook could damage eBay Shops, but as this has carved out a niche providing an ecommerce platform for smaller retailers, it may be able to coexist with Facebook Credits.

The final question is one of privacy. A similar scheme to the one proposed for Facebook Credits was suggested back at the beginning of the decade. It would have stored people’s personal data, allowing them to shop across participating sites with only one login. But it was proposed by Microsoft and people decided they didn’t trust the Redmond giant with that sort of data. The question for Facebook is how much times have changed, and whether people now trust Mark Zuckerberg more than they used to trust Bill Gates.

Michael Nutley is editor-in-chief of New Media Age and Reputation Online

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